Discussion:Calculation of Interest on examed return
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Discussion Forum Index --> Advanced Tax Questions --> Calculation of Interest on examed return
Discussion Forum Index --> Tax Questions --> Calculation of Interest on examed return
| 3 November 2009 | |
| here it is...
the taxpayer filed his 2007 tax return in July 2009. The return showed an overpayment of $1300. The 2006 return was already being audited, so the examiner requested the 2007 return be directly filed with him. The 2007 return was audited and increased the tax to $1500. Thus the net tax increase is $200. The taxpayer gets hit with the late filing minimum penalty of $100, but the examiner is calculating interest on the entire $1500, not the $200. This doesn't seem correct. Am I missing something? I have not discussed it with the auditor, but it seems wrong. | |
| 3 November 2009 | |
| until the refund was issued (or at least authorized), it would seem like the IRS had the money and should not be charging interest on funds in its possession.
kind of silly, though, for the taxpayer to give an auditor a return with that much missing income/overstated deductions. Where did all of the intelligent clients go? | |
| 3 November 2009 | |
| Well...it comes down to agreeing to dissallowing some auto deductions and cash payments to independent contractors.
We had to give in to the auditor to allow 100% of the travel and meals and entertainment that was at best 70% business related. | |
| 3 November 2009 | |
| sounds like the IRS came up with a correct tax liablity overall, then. | |
| 3 November 2009 | |
| When the 07 return was filed was the 1300 refund asked to be applied to 08 or refunded to the client? | |
| 3 November 2009 | |
| This is one of those situations that seems unfair because interest isn’t allowed in both directions.
If a return is filed late, no interest is allowed on the refund for any day before the date that it is filed. IRC §6611(b)(3). As a result, if a 2007 return that shows a $1,300 refund is filed, say, on 7/1/09, no interest is paid on that refund for the period 4/15/08 to 6/30/09. In addition, no interest is allowed on a refund from an original tax return if the IRS issues the refund shown on the return within 45 days. IRC §6611(e)(1). So, if the IRS issued the $1,300 refund within 45 days, it didn’t have to include interest. However, on the flip side, interest is charged on a deficiency from the date that the tax was required to be paid to the date of payment. IRC §6601(a). The interest will stop running 30 days after the date that the taxpayer signs a waiver agreeing to assessment of the deficiency. IRC §6601(c). As a result, if the IRS determines a $1,500 deficiency for the same 2007 return, interest will be owed from 4/15/08 to 30 days after the date that the taxpayer signs the waiver agreeing to assessment of the deficiency. Fortunately, here, you're not talking about a lot of money. The interest on $1,500 from 4/15/08 to 12/3/09 is only $124. | |
| 3 November 2009 | |
| Dave, as I understand it the refund shown on the original return was never issued. The auditor changed it from a $1,300 refund to a $200 tax due balance. | |
| November 4, 2009 | |
| Interest is NOT charged on a deficiency. It's charged on an underpayment, which was only $200 here. | |
| 4 November 2009 | |
| Oh, I'm sorry, I thought that the $1,300 refund had been issued. If a refund was requested, then frozen and not issued, then I agree that interest should be owed on only the $200 difference. | |
